As a financial investment product, the annuity product offers the investor a flexible financial retirement plan with a guaranteed lifetime income, insurance benefits, and tax-deferred savings">
 

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Purchasing an Annuity


As a financial investment product, the annuity product offers the investor a flexible financial retirement plan with a guaranteed lifetime income, insurance benefits, and tax-deferred savings.

An annuity is a contract between the insurance company and the insured where the insurance company agrees to pay a stipulated amount to the insured beginning at a time specified by the insured. The buyer of the annuity pays either a single premium or installments to the insurance company which invests the money.

Annuities are designed with a broad range of features that are designed to provide long-term income. Similar to retirement accounts, an annuity offers the benefit of tax deferred interest. The difference between an annuity and regular retirement accounts is that the principal invested into the annuity has already been taxed, and therefore is not taxed at the time the money is withdrawn.

Traditional retirement accounts impose limits on the amount of money that may be invested during the year. There is no limit to the amount of money that you can deposit into an annuity account.

When considering the purchase of an annuity, make sure you are structuring the annuity to your best advantage. Carefully determine your goals for the annuity and ask yourself the following questions before you purchase an annuity.

How old are you?

The annuity is designed to provide you with lifetime income once you retire. Your age will determine how long you will have to invest into the annuity. The longer you can invest, the more income you will have once you begin to receive income from the annuity.

Take into consideration that people are retiring at an earlier age. Try to determine when you will retire and then try to calculate how long you will spend in retirement. Most people retirement plan will be at least 25 years spent in retirement.

Your goal, then, is to invest enough money into the annuity to provide you with at least 25 years or more of income.

How much can you invest into your annuity?

A flexible annuity is an annuity which permits installment payments over a period of time. A single premium annuity is purchased with a single deposit.

Your investment into the annuity will determine how much you will earn over the life of the annuity. Is this your only retirement vehicle or are you planning to use the annuity to bridge the gap from another retirement plan?

What is the interest rate?

The higher the interest rates being paid on your investment, the better the return on your annuity. Check with various companies to make sure you are getting the best rate. Many companies will offer a higher first year interest rate as an incentive to purchase.

What expenses will be incurred?

The insurance company will charge various administrative costs against your annuity contract. Each company will have their own fee structure, so it is important to investigate what the fees are. The lower the fees, the more your investment grows.

Surrender fees may be charged if you withdraw from the annuity within the first few years of your contract. Make sure you have a full understanding of these charges.

Is the insurance company stable?

This is your retirement. Choose wisely the company in which you wish to purchase your annuity from. Is the company financially strong? What is the rating of the company? Do they have a good reputation? This company has guaranteed you a retirement income; make sure that they will be there when you retire.

Purchasing an annuity as part of your retirement plan is an active approach to your financial security. Study the various types of annuities and choose the one that falls in line with your retirement goals. Always comparison shop for the best annuity with a strong company.



Retirement | Retirement Plan News